[section id="family-trust-guide" format="overview"]
Should I set up a family trust?
A family trust is a discretionary trust set up by a trustee under a legal deed to hold and manage assets to benefit beneficiaries. The deed sets the rules for how the trustee controls the trust property and how income or capital can be distributed to beneficiaries.
At Liston Newton Advisory, we've spent decades helping small business owners and investors establish and manage trusts that provide real financial advantages. This guide breaks down the pros and cons of family trusts, the tax benefits, and the steps involved in setting one up so you can confidently make an informed decision.
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[section id="why-establish-family-trust" format="ol"]
Why establish a family trust?
The primary purpose of a family trust account is to protect your income by reducing your tax obligations. Many family business owners choose to structure their business under a family trust to minimise tax liabilities and protect assets from financial risks.
There are three key reasons why you should set up a family trust:
- Your family business is growing
- You have new business opportunities
- You need to structure your investments properly
[section_inner_1 id="family-trust-example" format="case"]
An example of why you should set up a family trust
If you operated as a sole trader and earned $200,000 in a year, you would be obligated to pay approximately $65,000 in tax.
Instead, you could place your profits within a family trust to lower your tax obligation. Then, you can have the trust distribute a portion of the profits to you and the other beneficiaries.
Except in certain specific circumstances, the trust does not pay tax. Rather, the beneficiaries are taxed at their personal tax rates, which are likely lower than the corporate tax rate you would have otherwise paid.
In this example, if each beneficiary receives $66,600 from the trust, the combined total tax owed would be around $40,000.
In the end, your family trust has saved you $27,000.
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[section id="what-is-family-trust" format="ul"]
What is a family trust account?
A family trust is a discretionary trust that holds assets and distributes income to beneficiaries under a trust deed, managed by a trustee. It's commonly used for tax planning and asset protection.
Key features:
- Tax planning flexibility: trustees can distribute income and capital gains across the family to minimise tax; where profits are high, distributions can include a company to cap the rate at 30%.
- Asset protection: assets can be held in a trust rather than in personal names, and using a corporate trustee adds limited-liability protection.
- Control via the deed and trustee: the trust deed sets the rules, while the trustee controls distributions and handles yearly financials and returns.
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[section id="how-family-trust-works" format="ol"]
How does a family trust work?
A family trust operates under its deed with a trustee managing assets and distributions. The trust prepares financials and lodges a trust tax return each financial year. Income is allocated to beneficiaries, who are then taxed at their personal rates. If the trust's business turnover exceeds $75,000 in a year, it must register for GST.
How it works, step by step:
- Calculate profit at year's end, then determine distributions to beneficiaries.
- Add each beneficiary's distribution to their assessable income for tax.
- Complete annual financial statements and lodge the trust return.
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[section id="trustee-responsibilities" format="ul"]
What are a trustee's responsibilities in Australia?
Trustees must comply with Australian trust law and follow the terms of the trust deed. They owe a fiduciary duty to act in the best interests of beneficiaries, including making lawful distribution decisions, keeping accurate records, and ensuring the trust meets ongoing tax and compliance requirements. For more details, see our guide on legal considerations when structuring a family trust.
Trustee responsibilities checklist:
- Follow the deed and fiduciary duty: act in the best interests of beneficiaries and comply with Australian trust law.
- Make and document distribution decisions; decide how income or capital is distributed and formally record these as trustee resolutions.
- Keep accurate records: maintain the deed, beneficiary details, financial statements, meeting minutes and resolutions.
- Meet tax and registration obligations: ensure compliance with ATO requirements; register for GST if annual turnover exceeds $75,000.
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[section id="beneficiaries-inheritance" format="ul"]
Family trust beneficiaries and inheritance explained
In a family trust, the beneficiaries are the people entitled under the deed to receive income or capital. Each year, the trustee decides how to distribute profits, which are taxed at each beneficiary's personal rate. Over time, family trusts can also play a role in succession planning, including how wealth passes to future generations through structures like a testamentary trust.
When considering how a trust fits into broader succession or estate planning, it’s also important to understand the legal aspects of family law — particularly where blended families, separation, or inheritance arrangements may affect beneficiaries and asset distribution.
Key points about beneficiaries & inheritance:
- Entitlements -- set out in the trust deed, covering income and capital distributions.
- Distributions -- trustees decide allocations annually, and beneficiaries pay tax at their own rate.
- Succession -- trusts can support intergenerational planning, e.g. assets held until children reach adulthood.
- Vesting -- family trusts must end (typically after 80 years), at which point remaining assets are distributed.
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[section id="family-trust-pros-cons" format="proscons"]
Family trust advantages and disadvantages
[div data-role="pros"]
- Business tax-effective: distribute income/capital gains across the family to minimise tax; cap via company at 30% when needed.
- Investment tax-effective: concession on capital gains after 12 months; distribute gains among family members.
- Protect business assets: use a corporate trustee to gain limited liability benefits.
- Protect investment assets: hold assets in the trust, not personally, for added protection in financial/legal issues.
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[div data-role="cons"]
- Limited to family group: can't add outside shareholders or non-family beneficiaries.
- Scaling limits: planning becomes tricky beyond ~$500k profit; a company may suit better.
- Grant access limits: some government grants/tax concessions are unavailable to trusts.
- Ongoing maintenance: compliance and reporting costs; distributions must align with the deed.
- Finite lifespan: trusts must vest (typically by 80 years) and distribute remaining assets.
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Advantages of having a family trust
Family trusts make your business tax-effective
Trust income and capital gains can be distributed across a family group in proportions that best suit each individual's tax rates. This means setting up a family trust allows a trustee to avoid the company capital gains tax rate, and instead distribute profit from a business in a way that effectively minimises taxes.
When a business's profit becomes too large to distribute effectively, a family trust can also distribute to a separate company to cap the tax rate at 30 per cent.
[div class="feature-link"]
Keen to learn more about that 'separate company'? Let's talk about how to use a bucket company to minimise your taxes.
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Family trusts make your investments tax-effective
A family trust is a tax-effective structure to hold investments, as the dividend income received can be distributed across the family in a way that best minimises tax. If trust assets are sold after 12 months, the trust can receive a capital gains concession, and the capital gain income can be distributed among family members.
Family trusts protect your business assets
If you run a business from a family trust, you can set up a company to act as the trustee. The trustee company gives you access to the limited liability advantages of a company structure and gains you the tax flexibility advantages of a family trust.
Family trusts protect your investment assets
If significant investment assets are involved in your business, a family trust can offer secure protection for them, as these assets won't be held in your name. Your trust is a separate legal entity, meaning you can access a certain level of protection if you face financial difficulty or legal action.
If structured correctly, the trust can hold various assets, including investments, business income or shares, and even the family home. However, holding a personal residence in a trust may have tax implications, so professional advice is essential.
Disadvantages of family trusts
Family trusts only distribute income to your lineal family
One of the main disadvantages of a family trust is that you can't add people outside your family or add additional shareholders. Therefore, if you plan to run your business from a family trust and desire to grow your business beyond your family in the future, then a family trust may be a significant disadvantage.
Family trusts do not scale well
If your business takes off and profits exceed $500,000 per annum, the tax planning of a family trust becomes increasingly tricky. In this case, a company becomes a better solution.
Family trusts cannot access government grants
A family trust can flexibly access funds, though it's quite limited in other ways. Operating a family trust means you likely can't access many government grants and tax concessions, such as the Research and Development tax concession or the Early Stage Investor concessions.
Family trusts require ongoing maintenance
To keep the trust in good standing, ongoing tax compliance is required, including financial reporting, tax filings, and ensuring distributions align with the trust deed. These costs start at $1,500, plus GST, for very simple holding trusts. The amount increases as the trust becomes more complex.
A family trust is not indefinite
The trust must be wound up at a specific time, known as trust vesting. In Australia, trusts typically have a maximum lifespan of 80 years, after which assets must be distributed to beneficiaries.
[div class="feature-link"]
What about the taxes? Not to worry -- we go into detail about how family trusts are taxed in Australia.
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[section id="family-trust-costs" format="costs"]
How much does setting up a family trust cost?
In Australia, establishing a family trust involves initial legal costs and ongoing compliance expenses. The upfront fee covers the preparation of the trust deed and registration requirements. At the same time, annual costs usually relate to ASIC fees (if a corporate trustee is used) and accounting for tax returns and financial statements. For more details, see our guide on the additional costs of owning property in a trust.
[section_inner_1 id="family-trust-cost-table" format="table"]
Typical family trust costs in Australia
[table]
[caption] Indicative setup and ongoing costs for common trust scenarios (excludes site-specific advice).[/caption]
[thead]
[tr]
[th]Cost type[/th]
[th]What it covers[/th]
[th]Typical amount (AUD)[/th]
[/tr]
[/thead]
[tbody]
[tr]
[td]Legal setup[/td]
[td]Drafting and executing the trust deed[/td]
[td]$1,500 + GST[/td]
[/tr]
[tr]
[td]Corporate trustee setup[/td]
[td]ASIC registration and company establishment[/td]
[td]$2,500 + GST[/td]
[/tr]
[tr]
[td]Annual ASIC fee (if corporate trustee)[/td]
[td]Ongoing corporate compliance[/td]
[td]~$290 per year[/td]
[/tr]
[tr]
[td]Accounting & tax[/td]
[td]Preparation of annual trust return and financial statements[/td]
[td]$1,000 - $2,000+ per year[/td]
[/tr]
[/tbody]
[/table]
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[section id="set-up-family-trust" format="ol"]
How to set up a family trust in 9 steps
1) Determine the type of trust you need
Before setting up your family trust, you'll need to decide on the type of trust that best suits your financial goals. The most common choice is a discretionary trust, which allows flexible income distribution to beneficiaries. However, a unit trust may be preferable if fixed entitlements are required.
2) Determine your fund's trustee(s)
The trustee of your family trust has an important role, as they have the ultimate power over who receives money from the trust. They also hold a fiduciary duty to act in the best interests of beneficiaries. Typically, you would nominate yourself as trustee, or have a corporate trustee with yourself acting as the company director.
In some rare instances, you may choose a third party to act as your trustee. This could be a family member or a professional individual, such as a financial adviser or lawyer.
3) Identify your beneficiaries
Typically, a beneficiary of your family trust can only come from within your family unit. The trust deed sets out the extent to which they're entitled to income or capital from the trust.
In the case of a discretionary trust (or family trust), you can set these entitlement percentages as you see fit. For a unit (or fixed) trust, these percentages are set out within the trust deed.
4) Create the trust deed
To become active, a trust needs a legally binding deed. The deed outlines all legal arrangements, including the trustee's and beneficiaries' responsibilities and the details of trust property (e.g., business profits, investments, or real estate).
5) Settling the family trust
Once the trust deed is drafted, it needs to be settled. This is done by the appointed settlor, typically an individual unrelated to the family. The settlor must contribute a nominal amount (e.g., $10) to formally establish the trust.
6) Signing the trust
Once the trust is signed, the trustee(s) hold a meeting to formally agree on their appointment to the position. This binds them to the terms and responsibilities of the family trust deed, which is then set as the legal framework governing the trust's operation.
7) Stamp duty
How you pay stamp duty on your family trust will vary between Australia's states and territories. Some states require the family trust to be stamped by the relevant revenue authority (such as the State Revenue Office).
- VIC: $200 stamp duty, due within 30 days of execution of the deed. No charge for additional copies.
- NSW: $860 stamp duty, due within 3 months of execution of the deed. $10 charge for each additional stamped copy.
- ACT: Stamp duty is not payable, and no time limit is imposed.
- QLD: Stamp duty is not payable, and no time limit is imposed.
- SA: Stamp duty is not payable, and no time limit is imposed. Deeds may still be considered 'exempt' in some circumstances.
- WA: Stamp duty is not payable, and no time limit is imposed.
- NT: $20 stamp duty, due within 60 days of execution of the deed. Each additional stamped copy costs $5.
- TAS: $50 stamp duty, due within 90 days of execution of the deed. There is no charge for additional copies.
8) Applying for an ABN and TFN
An ABN and TFN must be lodged for the trust to become active and recognised for tax purposes. These registrations ensure the trust can meet the ATO's annual compliance requirements.
9) Making it official with a bank account
Finally, a trust bank account needs to be opened for the trust fund. This must be opened in the name of the trustee. The first deposit in the account will be the settlement amount and must be made before any other transactions are undertaken.
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[section id="family-trust-scenarios" format="ul"]
When should you set up a family trust?
A family trust can be useful in a range of situations, particularly for small business owners and families wanting to plan for the future. They provide tax flexibility, protect assets from risk, and can support long-term succession goals. If you're moving from being a sole trader, see our guide on what to know before switching from a sole trader to a trust.
Scenarios where a family trust may suit you:
- Growing business profits: When your taxable income rises, you want to manage distributions.
- Expanding operations: As your business scales, a trust can hold assets securely and separate risk.
- Approaching higher tax rates: Once your average tax rate nears 30%, trusts allow income splitting to reduce the impact.
- Estate planning needs: if you want to structure assets for succession and future generations.
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[section id="family-trust-faqs" format="faq"]
Frequently asked questions about family trusts in Australia
Can I set up a family trust for my child?
Yes. Parents often use a family trust to provide for children by naming them as beneficiaries in the trust deed. This allows distributions of income or capital for their benefit. Remember that distributions to minors are taxed at higher rates, but a testamentary trust established through your will can provide tax concessions and greater flexibility once children turn 18. These structures also protect assets for succession and meet your estate planning goals.
What is the role of the trustee in a family trust?
The trustee has ultimate control of the trust and a fiduciary duty to act in the best interests of beneficiaries. This includes following the rules of the deed, making distribution resolutions, keeping detailed records, and meeting all ATO obligations. Many families choose a corporate trustee for added liability protection, but whichever option you select, the trustee is legally responsible for compliance and accurate reporting.
How long can a family trust last in Australia?
Most family trusts must vest within 80 years under Australian trust law. Upon vesting, remaining assets are distributed to beneficiaries according to the deed. Families planning for succession may use related structures, such as a disability trust, to support vulnerable beneficiaries after the family trust ends.
Do family trusts pay tax in Australia?
Generally, the trust itself does not pay tax. Instead, income is distributed to beneficiaries, who include it in their personal tax return and are taxed at their marginal rate. If trustees fail to make valid distribution resolutions by year-end, undistributed income can be taxed in the trust at the top marginal rate (currently 47%). This makes tax planning and proper compliance essential each year.
What compliance obligations apply to family trusts?
Every year, trustees must prepare financial statements, lodge a trust tax return, and document distributions with valid resolutions. If the trust has a corporate trustee, annual ASIC fees also apply. Where turnover exceeds $75,000, the trust must register for GST. Keeping accurate records and meeting deadlines is critical to avoid penalties and maintain the tax benefits of the structure.
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[section id="should-you-have-family-trust" format="overview"]
Should you have a family trust? The big question answered.
While the family trust tax and asset protection benefits are obvious, it's a structure that must be adequately understood before entering one.
To decide if you should create a trust for your family business, ask yourself the following questions:
- Am I expecting more people to join my business?
- Am I expecting anyone to exit the business?
- Do I intend to sell my business for a significant capital gain, or do I want to issue shares to existing employees?
- Do my family or I plan to take advantage of government grants or tax concessions?
- Am I prepared to keep strict financial records?
You should put money in a trust if you need a tax-effective plan to protect your family and business assets. But should you choose to set up a family trust, it's crucial to consider your long-term financial and tax planning objectives and any legal responsibilities involved.
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[section id="contact-family-trust-advice" format="cta"]
Need help setting up a family trust?
Our accountants help families across Australia set up family trusts. However, if you'd like an in-person meeting, we have offices in Gold Coast, Donald, Malvern, Melbourne, South Melbourne and Port Macquarie.
If you're looking for a structure that provides for effective tax planning and improved protection for your family and business assets, then a family trust might be for you.
Book a chat with our business accountants today, and let's get started on your trust.
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